As advisory practices and CPA firms increasingly find themselves working together in some capacity, many veteran financial advisors are providing tax planning services under the same roof as their traditional wealth management. As a certified financial planner and certified public accountant, Bordeaux Wealth Advisors Director of Tax Planning Liting Chuang will discuss the key challenges and advantages when working at the intersection of tax and wealth.
Transcription
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Tobias Salinger (00:09):
Hi, I am Tobias Salinger. I'm the chief correspondent at Financial Planning. Our parent company is Arizent, welcome to the Leaders Forum, where we bring together innovators and senior executives to share their experiences and perspectives on the most pressing topics. The subject of our discussion today Liting Chuang is the intersection of wealth management and tax services. We've got a great guest today is the director of tax planning and an associate wealth advisor with Menlo Park, California based Bordeaux Wealth Advisors. Welcome. Thank you so much for joining us.
Liting Chuang (00:50):
Good morning, Toby, and thanks for having me. Excited for to chat with you.
Tobias Salinger (00:55):
Excellent. Laing participated in our upcoming feature on this topic of the increasing combination of wealth and tax related services for clients. You'll be able to see that feature package on our website@financial-planning.com early next week. One quick programming note for the audience before we jump in. Please feel free to chime in with questions at any time. I'll be sure to pose some of them to our guest as we go. Now, for most people outside of the industry, taxes and wealth fall under that same general financial label. Why has there been such a separation between these two fields traditionally?
Liting Chuang (01:43):
Well, I think traditionally people have viewed taxes in forms of compliance. The annoying duty you have to do on an annual basis to satisfy a reporting obligation to the government and have thought of wealth management specifically in terms of investments. But both these fees are much broader and more, sorry, very intertwined. I mean, we could spend all our time talking about how they're linked, but the bottom line is that taxes are the biggest source of leakage of anyone's wealth. So understanding and planning for taxes with a qualified advisor who is knowledgeable in tax as well as how an investment impacts on one's tax situation is critical for individuals and families to help preserve and grow their wealth.
Tobias Salinger (02:42):
And that reminds me of speaking with C-P-A-C-F-P advisor, someone who holds the same certifications as yourself, who often ask clients to name their largest annual expense and they usually hear something like mortgage or tuition or something like that. And this professional is fond of reminding clients that taxes are their largest expense each year. So you have expertise in both of these fields, both of these professions. Did you start out in accounting or wealth and when did you decide to branch into the other field?
Liting Chuang (03:31):
I started my career out in public accounting. I'm going to tell you a quick story. So when I entered college at the University of Washington, Phil Huskies or fellow Huskies on this call as a prebio engineering major, and I very quickly discovered that I do not particularly love science. So obviously pre-engineering is out. I quickly changed my major to undecided and took a wide variety of classes from intro to computer programming and even dance theory. And no, I'm not a dancer and nor will I be a dancer, you will never catch me on dance floor. And then for whatever reason, I decided to try out accounting and I soon discovered that I'm actually very good at accounting and I can actually see myself working at an accounting firm. And I love it so much through my undergrad years that I even got a master's degree in taxation after graduating with an undergrad degree.
(04:35):
So I spent almost 20 years in public accounting specializing high net worth individuals and closely health business at a local CPA firm before pivoting into wealth management last year. So I had very good foundation and tax knowledge at the firm I worked at, but I was looking more being able to provide proactive tax planning for my clients instead of doing the mundane tax compliance work. So that was kind of why I decided to join Bordeaux and be forward looking, help clients come up with tax efficient opportunities to grow their wealth and to help them in the present as well in the future.
Tobias Salinger (05:28):
Well thank you for sharing your story. It was a little painful when you mentioned the Huskies as they beat my team, the Longhorns in football just a few weeks ago. Well, it's been two months, but still it feels fresh. But on that note, you do have two of the most popular and rigorous certifications in the financial services. What was the level of difficulty in getting both of those certifications and what advice would you share with aspiring professionals considering pursuing one or even both of 'em?
Liting Chuang (06:11):
I still have nightmares about both exams. They're both awful in different kinds of way. I mean, if you look at the industry in general, I think it's a rarity to see someone going from A CFP to A CPA. Usually it's a CPA adding on CFP designation. And the primary reason is that most states require you to have certain accounting hours before you can even sit for an exam. And while it's not impossible, it does take someone with time and commitment to take necessary accounting courses to sit for the CCPA exam. In my opinion, I would say the CCF P exam is wider in scope in topics, just the volume of information you have to retain to set for the test. Whereas the CPA exam goes deeper into subject knowledge. I mean you got to know your tax code, how tax laws impacts one's tax situation.
(07:18):
You have to know how audit procedure works, how to read financial statements. So CPA exams vary technical in nature. Both exams are challenging. I mean it doesn't matter which way you're going C-P-A-C-F-P or CCF PCP exam. For me, the CFP exam is hard because due to lack of time and energy, I have kids at home. So with family commitments and full-time job, it's hard to find the necessary time to study the CPA exam. I took it fresh out of college while I had the time, but there was a lot of information and regulatory information to retain and I'm going to date myself, but I took the very last paper CPA exam where you had to take all four parts at the same time and thank goodness I study enough to pass on the first try so I didn't have to take it again. Toby, I have a question for you. Do you know what CPA stands for?
Tobias Salinger (08:23):
Certified Public Accountant?
Liting Chuang (08:25):
Nope. It's can't pass again.
(08:31):
So my advice for the young professionals on this call start early. If you thinking about getting any sort of designation, start preparing in your twenties when those late night study sessions are easier to do and you're a seasoned professional looking to ask designations, create a study plan for yourself and stick to, it's going to be painful for a few months, but it's much better to just hunker down for a couple months study, lead the kids to the grandparents or hire a babysitter and find a strategy that work for you so you can pass it on the first try. Then we can do hard things. So if that's in your plan, you should do it.
Tobias Salinger (09:19):
That's great. Great advice for professionals in one field or the other and aspiring professionals of tomorrow. Appreciate the joke as well. Our sister publication Accounting today does an annual feature on the best accounting jokes and it's always pretty good. We tried our own with the best jokes for financial advisors, but maybe it wasn't as good. Maybe there's something about accounting that really lends itself to these kind of jokes, but that's great. So why don't we kind of focus on the process at Bordeaux Wealth Advisors. I know there are a range of approaches out there in the industry when we think about tax related services. From a wealth management perspective, obviously we're in a busy time of year. When we think of April 15th looming about a month and a half away, how does Bordeaux Wealth Advisors handle the tax side of the business for your clients?
Liting Chuang (10:31):
Before I answer your question, I just want to tell you how much I love not being in public accounting during tax season. It's wonderful that I can take spring breaks and midwinter break vacations now, but for the CPAs on this call, I feel your pain. I know what you're going through and we're almost there. So we at eaux, we focus on tax, implementing tax strategies and helping client find tax efficient investment strategies. We don't do tax return preparation. We leave that for the experts in the field to handle our client's complex tax returns. We do work collaboratively with CPAs to ensure tax returns are completed and accurately file and also assist with quarterly tax projections. And CPAs that we work with really love the fact that we help with quarterly tax projections and extension payment recommendations because for them quarterly tax projection and to be honest, it kind pain in the butt and it's not a money maker, it's just another task you have to do every quarter to help clients.
(11:46):
And during tax season, the CPAs and clients really appreciate us looking through the returns before their file. Generally the returns that we see already be filed and we don't find any errors. But once in a while we do find errors and the CPS and the clients are grateful that they're caught before their file because no one wants to get an IRS notice on an incorrectly filed tax return. As I mentioned before, I'm relatively new to Bordeaux. I've only been here a little bit over a year. But what has really impressed me about this firm is the composition of the client service team. The way we're structured here is each client's household is assigned two advisors, one with a strong background in investments and another with a strong background in tax. And this is all to ensure that the client is getting both investment in tax strategies from subject matter experts. And it's hard for one person to be good at everything, but when we work as a team that ensure the client has the best strategy from multiple individuals,
Tobias Salinger (13:09):
Well that sounds like a fantastic approach to working with clients. So we do hear more about this recently. We've seen a lot of mergers and acquisitions involving wealth management and CPA firms or wealth management firms that have CPA referral programs or CPA firms that want to do some form of wealth management. They may work with an outsourced wealth management option. So we're seeing a lot of activity at the intersection of wealth management and tax related services. What do you think is driving this increasing collaboration and what are some of the challenges there?
Liting Chuang (14:10):
I mean, I think for wealth management firms that are branching into tax preparation services, they see it as an advantage providing a one-stop financial solution to clients where the clients can receive tax investment estate planning services through one relationship and with the hope that it simplified their financial life and also creates that sticky factor with the client. The challenge in that is it's hard for someone, a firm to be good at. If I were to encounter service provider that say they know everything, I would probably run the other direction. And the reason being, tax laws are constantly changing and it's hard to stay current unless you're in a day in and day out. And same with investment strategies. There's always something new that can and should be explored. So while it's a great idea to merge the two there, definitely there need to be thoughtful consideration put into it before it's implemented. And in my opinion, tax integration within a wealth management firm is an afterthought. While there is value to the client in tax preparation, the true value is really coming up with tax strategies and not the annual tax filing. The tax filings are back, we're looking and once the calendar flips over to January 1st in general, it's too late to implement any significant strategies that would impact your tax situation at that point.
(16:11):
And in addition, if you have a team of tax preparers in your firm, you are almost obligated or required to send clients internally. You have this group of team that you need to keep busy and being a CFP and a fiduciary, I think clients should work with CPAs or tax preparers that meet their needs. And if it makes more sense for the client to work with an external CPA, that should be what is recommended to the client. And not that the company needs to keep their staff busy. I mean there's definitely challenges emerging. The two, and I for one think the two industries should work collaboratively, but it's hard for one firm to do it all.
Tobias Salinger (17:13):
Well, it's so interesting to think about because it is something where I think everyday people are just like, oh, they're financial people, they can do everything. But here you're kind of reminding us of why it's important to have outside expertise and find the best solution for clients regardless of the company that they're working with. And I think in thinking through this feature about the intersection of wealth and tax related services, it's very striking just to think about the impact of taxes on investment returns. I agree with a lot of people who have kind of enlightened me about that, where there's a lot of focus on the expert stock picking and getting the greatest return in portfolios, but they tell me it's not what you earn, it's what you keep. And in that sense, when you think about things like tax loss harvesting, it really puts it in a different light to just understand that losses from some securities could in fact help reduce your taxes and increase your yield there without this whole focus on just getting the highest return from your investments.
(18:59):
So if you have a loss, it could be helpful in the end. So really interesting food for thought for our readers, for professionals out there in the industry. And also interesting to think about just how things have changed over time. Based on what I've been able to glean from the history of these two fields, it seems that until around the late eighties, accountants were not even allowed to provide wealth management services even if they wanted to because they couldn't accept commissions. But that changed with the A-I-C-P-A making a change to its policies in those days. But when we think about today, what if any other barriers remain in place to offer both of these services under one roof?
Liting Chuang (19:58):
Gosh, 1980s, that seemed like yesterday, but also a long time ago. Well, I was just a taller in the eighties, so I can't really speak to the historical background. But the barrier in current day, I mean it's lack of time and staffing shortage. I mean, during covid we have the quiet quitting and then I'm sure you've read about Wall Street Journal about accountants leaving the profession and some going to become influencers. As I alluded to earlier, I mean, it's hard to point someone who is well versed in both investments and taxation. While most wealth advisors have some general knowledge with respect to taxation and then those tax concepts tested on the CFP exam, but at the end of the day, they're still just very general knowledge. Me being a season tax professional, I still have to look up things. Sometimes I question was that the right treatment? So I mean really it's just finding the time to keep yourself up to date on whether it's investments or taxation.
(21:21):
In my mind, the barrier to having both tax and wealth under one roof is really with more people leaving public accounting. It has created never ending busy season for accountants. And that really leaves very little time for the CPAs to be able to help clients with proactive tax planning and implementation of tax strategies. So it's really while you can have a team of CPAs in your firm doing tax return, I mean they're not going to have time to help you with tax strategies because they're just going to be busy preparing returns and making sure those returns are timely file. So really the barrier to have an all under one roof and really just lack of people
Tobias Salinger (22:17):
And certainly never enough time in the day. In that vein, what are some technology tools that could help financial advisors seeking to add more tax planning to their services?
Liting Chuang (22:37):
I think there should fear being people that AI is going to take over and make CPAs, CFPs service providers obsolete. And there are a lot of great tax planning software out there for advisors, for example, who list a plan for Bloomberg's BNA income tax planner. I personally prefer BNA income tax planner, and that's only because I've used it 20 plus years. While there are great tools out there for tax planning, at the end of the day, the most valuable tool a firm can have is their people. Someone who knows tax and can interpret the results to clients in an easy to understand, easy to understand conversation, and also to help clients implement these strategies in a timely fashion. So tool technology is great, but end of the day, it's your people that's, you need to hire a group of qualified people that knows what they're doing and are eager to learn to ensure clients well service.
Tobias Salinger (23:57):
Well, I think it's a great note to end on. Everyone. Please give another virtual round of applause to our guest, Laing Chang of Bordeaux Wealth Advisors. And don't forget to check financial planning.com next week for the Wealth and Tax Day feature and all of FPS news on the industry. If you want, go ahead and subscribe while you're there for financial planning. I'm Tobias Salinger. Thanks again to ING and everyone have a great afternoon.
Liting Chuang (24:35):
Thank you, Toby.
